Economy gets big tick

By
Peter Martin

Months after Labor's mining tax, its carbon tax and its fourth successive budget deficit, Australia has been given the tick of approval by the world's biggest fund manager.

MONTHS after Labor's mining tax, its carbon tax and its fourth successive budget deficit, Australia has been given the tick of approval by the world's biggest fund manager.

BlackRock is one of the world's most important buyers of government bonds, investing $US3.7 trillion worldwide. It says Australia's carbon tax and the mining tax have had at most a "marginal" impact on perceptions of the country's risk. More important has been the government's success in shrinking its budget deficit.

The fund manager's new sovereign risk update ranks Australian government bonds as the world's seventh least risky, up from 10th least risky three months ago.

No other nation has managed to jump three places in the latest survey. The finding is at odds with a claim made by federal Coalition Treasury spokesman Joe Hockey last August that Labor was "adversely impacting Australia's sovereign risk profile".

BlackRock's Australian head of fixed income, Steve Miller, said Australia's position was "exceedingly strong" and strengthening.

"The plain fact is, compared to the rest of the world, and this is what we are doing, Australia's public debt position is very, very strong.

Whether you are looking at budget balance or public debt to gross domestic product, whichever way we look at it, Australia comes out exceedingly strong."

The new BlackRock survey rates the governments of Norway, Singapore, Switzerland, Sweden, Finland, Canada, Australia, Taiwan, Germany and Chile as the 10 safest to lend to.

The United States is in the next 10 along with New Zealand and China, which have each moved up two places.

At the bottom, in positions 40 to 48 are Spain, Argentina, Ireland, Italy, Venezuela, Egypt, Portugal and Greece.

Japan and South Africa have each slid two places to 35 and 36.

Acting Treasurer Penny Wong welcomed the report as an "endorsement of Australia's strong public finances in the face of global headwinds".

A spokesman for Mr Hockey said the reality remained that business leaders had "expressed serious concern about the chopping and changing of government policy, the uncertainty of the taxation environment and the toxic relationship Canberra has with many members of the business community".

"Unquestionably, eight changes to the carbon tax, five versions of the mining tax, unexpected changes to business taxation, and the four largest deficits in Australia's history impacts on Australia's attractiveness as an investment destination," the spokesman said.

Speaking in reference to the interest rates Australia needs to pay to borrow money, Mr Miller said: "All other things being equal, this [the risk update] and the things that brought it about will put further downward pressure on bond yields." He said it would also make it easier for Australian state governments to borrow money.

The BlackRock calculation accords with those of the world's top three credit ratings agencies, which have given Australia their highest AAA rating. But it is a more recent calculation and the improvement reflects recent developments.

"The impact of the mining tax and the carbon tax would be marginal," Mr Miller said.

"We look at ability to pay and willingness to pay. Australia's budget position has improved. It has never defaulted. It has low debt by international standards."